The Fed’s Pivot Is the Opposite of Hawkish
The central bank’s policy stance is actually much more dovish than it was a year ago. This doesn’t bode well for the economy.
Not the appropriate metaphor.
Photographer: Bruce Bennett/Getty ImagesMuch has been written about how the U.S. Federal Reserve has pivoted to a more “hawkish” stance, leaning toward fighting rather than tolerating inflation. But has it? On the contrary, I would argue that it has done the opposite over the past year — a move that likely has more to do with markets or politics than with what’s best for the economy.
True, the Fed is now expecting to cut back on asset purchases and raise interest rates faster than it was earlier this year. The median forecast among officials is for three 0.25-percentage-point interest-rate increases in 2022. As of their September policy-making meeting, they were projecting just one such hike. But this is merely the natural, almost automatic, response that any policy maker, hawk or dove, would have to surprisingly high inflation and surprisingly low unemployment (as embedded, for example, in the famous Taylor rule).